All posts tagged Davos 2012

Tunisia’s new Prime Minister Hamadi Jebali said Friday that the North African country cannot underwrite democracy without the help of its friends in Europe and the United States, a year after a popular uprising ousted Tunisian President Zine al-Abidine Ben Ali.

“I appeal here in Davos to those who are listening. We are asking for your support as we do not have sufficient means to stand on our own,” Mr. Jebali told a gathering at the annual World Economic Forum in Davos.

“We are counting on the support of our friends in Europe and the United States,” said the prime minister who took office in December in Tunisia, where the Arab Spring started.

Mr. Jebali, a moderate Islamist, said that Tunisia is now capable of building a democratic state, with a new constitution that would guarantee civil liberties and human rights.

The country is also facing economic challenges that is slowing down its political transition but the economy is likely to start recovering this year, he said.

The profound challenges that regulators will face in winding down a complex, global, systemically important bank will demand the use of “bail-in-able” bonds that convert to equity in the event of a crisis, Britain’s chief banking regulator said Friday.

“There are some [banks] where the prospect of breaking them up is very, very difficult,” Adair Turner said during a panel discussion on at the World Economic Forum in Davos in reference to the idea of “resolution authority” that regulators around the world plan to adopt to prevent a recurrence of Lehman Brothers’ collapse in 2008.

“With those firms we are fundamentally going to have to resolve all of them in a globally integrated way…I believe we will have to move onto regulating that slice of the balance sheet beyond just equity to include bail-in-able bonds.”

Such bonds, which formed part of the U.K.’s Vickers Commission report on banking reform, would be unsecured but would convert to equity in the event of a crisis, Lord Turner said in comments to reporters after the panel.

He said that process would still amount to a resolution as management would be ousted, but that by having these instruments in place in advance it would allow regulators to sustain complex financial organization as ongoing entities and so minimize the risk of fallout in the wider financial system.

One of the world’s biggest steel firms, Russia’s OAO Severstal, says it’s ready for a euro-zone collapse and a return to the bleak conditions that faced the steel sector as a result of the economic downturn in 2008.

Its chief executive Alexei Mordashov says the company has already carried out internal stress tests to allow it to deal with the possibility of the failure of the euro, and is much better prepared for the turmoil another severe downturn would bring.

“We have conducted a strategic analysis and modelling for the collapse of the euro. But if Europe falls apart, there will be a lot of negative consequences which are very difficult to estimate, because in the short-term there will be a big shock to the world economy,” he says.

“We are very much exposed to the world economy, so the effect would be drastic — you’d see a significant contraction of the steel market which means restructuring would be likely. But I believe we’re much better prepared than we were in 2008 for the possibility of events like this, should they happen.”

The company only exports between 30% and 40% of its products, concentrating instead on Russia’s domestic market, but Mr. Mordashov says the health of the euro zone is “extremely important for the stabilization of the world economy, including for Russia.”

European Central Bank President Mario Draghi told the World Economic Forum Friday that the ECB’s actions in December had averted financial disaster, and cited evidence of signs of improvement in euro-zone markets in recent weeks.

“We know, for sure, that we have avoided a major funding crisis,” Mr. Draghi said in a public interview.

Mr. Draghi also said that there has been substantial progress in repairing public finances and in enhancing the governance of the euro zone.

He said that financial markets are now overpricing government risk and warned that “this kind of overreaction may last some time — these things don’t wash away overnight.”

However, he acknowledged that the bond markets, which had violently forced up borrowing costs for the least competitive and most highly-indebted countries, “have been the most potent engine of reform.”

A roomful of Russian elites at the World Economic Forum in Davos, Switzerland, identified corruption as Russia’s biggest problem and gave the government low marks for effectiveness.

According to a report in the Vedomosti business daily, Sberbank chief German Gref asked the attendees of a high-level business breakfast to choose, by means of electronic voting, the most pressing problem facing Russia today.

Just under a quarter of the guests — among whom were ministers, central bankers and heads of some of the country’s largest companies — identified corruption as the country’s biggest problem. The next most popular choice was an overly large state sector, which received 17.5% of the vote, followed by an out-of-date political system with just over 16%.

In a second vote, Mr. Gref asked the attendees to rate the effectiveness of Russia’s government from one (very ineffective) to nine (extremely effective). Almost 65% of the respondents rated the state’s effectiveness between a one and three—the three lowest ratings—with only 1.5% giving the government a nine.

When Mr. Gref asked if the “optimists” who gave the state such high marks cared to reveal themselves, powerful deputy prime minister Igor Shuvalov pointed to a colleague, Kremlin economic adviser Arkady Dvorkovich, and quipped: “It wasn’t us. I saw how he voted. We gave a different grade.”

French Finance Minister Francois Baroin Friday said he is confident Greece’s negotiations with its creditors will be concluded, even if it is a difficult process.

Asked if the European Central Bank should take a hit on its holdings of Greek bonds, Mr. Baroin said it is up to the ECB to define its policy.

Speaking from the World Economic Forum in Davos, Switzerland on French radio station BFM, Mr. Baroin also said France is united with Germany on pursuing the reduction of deficits and debts. With no room for stimulus, France will boost growth with cuts in labor costs, the details of which President Nicolas Sarkozy will announce Sunday.

Mr. Baroin also reiterated that France’s 2011 deficit will be below the target of 5.7% of gross domestic product, and probably even below 5.5%.

U.S. Treasury Secretary Timothy Geithner Friday praised Europe’s progress in getting its debt crisis under control, but urged the euro zone to do more to put in place effective financial backstops to protect its struggling members.

“In the last two months in particular they’re laying the foundations for a more credible framework,” Mr. Geithner said. “But I think the Europeans recognize that the unfinished piece of that framework is building a stronger firewall.”

Speaking at the World Economic Forum, Mr. Geithner didn’t advocate greater International Monetary Fund support for the euro zone, or more funds for the IMF to act, but said that if Europe does do more work on firewalls, “we will need the IMF to play a supportive and constructive role.”

“You can’t substitute that for the absence of a European commitment,” he stressed.

He declined to take sides in the European debate over austerity and public stimulus, arguing that the effects of stimulus are overestimated by its supporters, but gave more emphasis to the notion that austerity alone would make the crisis worse.

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U.S. Treasury Secretary Timothy Geithner hinted Friday that the Obama administration would support an increase in resources for the International Monetary Fund to fight the euro crisis but only if Europe itself puts more of its own money on the line first.

The days of shady deals in the mining, oil or gas industries will be a thing of the past if Transparency International has its way.

The global civil society organization is piling the pressure on corporates and governments alike to sign up to practises it believes will help eradicate the corruption that the organisation’s chair calls the “resources curse.”

Huguette Labelle, at Davos for the World Economic Forum’s Mines and Metals council, says transparency is key to the process.

“We are working to ensure companies don’t operate in a secretive way, developing an agreement with a national government, but instead create a very transparent, negotiation or discussion that includes the local community and civil society, so that the next agreement is built in a way that ensures people understand what expectations need to be,” she says.

Extractive industries must publish what they pay, she says, ranging from concession fees, royalties and taxes, and, vitally, publish who their equity holders are, including subsidiaries.

“We’re trying to make fiscal havens a thing of the past. You don’t want to leave ways for crooks to hide their money, those that take away from the coffers of the state. You need to publish where subsidiaries are registered, and if it is in a fiscal haven, you better start worrying,” Ms. Labelle adds.

High food prices may sound catastrophic, but they may actually turn out to be a blessing in disguise for African farmers, says the head of the United Nations’ World Food Programme.

“You can look at hunger as a Malthusian nightmare, or you can look it as a tremendous opportunity because everyone has to eat,” says Josette Sheeran, executive director of the WFP, referring to a a theory that once population growth exceeds agricultural production, people will be forced to return to subsistence-level conditions.

“If you solve hunger, you create jobs up the entire hunger chain. The world can’t feed itself in 2050 without the African farmer having its time in the sun, so I believe the time has come for the African farmer.”

The world’s agricultural growth potential is in Africa, where yields are one tenth of what they could be with proper investment and conditions.

“You’re seeing now billions of dollars of investment pouring into Africa; not enough, not across the value chain or food production but I believe the opportunity is there,” she says.

“In the meantime, it’s going to take some real global coordination to ensure you don’t have nations who are so vulnerable to the price swings that are happening. A few shocks to major markets in weather and we’re back in those (negative situations).”

About Davos Live

Davos Live provides updates from the World Economic Forum’s annual talkfest in Davos, Switzerland, which draws more than 2,500 business, political and academic leaders for a five-day program of workshops and panel discussions. A team of reporters and editors from The Wall Street Journal and Dow Jones Newswires is on the scene, and will be posting news, commentary and gossip as the conference unfolds.